## Collection Lags and the Optimal Inflation Tax: A Reconsideration

_IMF Working Papers, July 1, 1993_

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## Bibliographic details
- Authors: José A. Tijerina, Alex Mourmouras
- Published: July 1, 1993
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451965346.001

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### Summary
- Re-examines the argument that collection lags combined with inflation erode fiscal revenues and thus argue against seigniorage.
- Uses an overlapping generations version of Dixit’s model to analyze how collection lags affect the desired rate of inflation.
- Main conclusion: depending on the specification of the collection cost function and the size of government spending in GDP, collection lags may increase, leave unchanged, or reduce the desired rate of inflation.

### Research question and approach
- Research question: How do collection lags affect the optimal inflation tax and desired tax structures?
- Model and approach:
  - Overlapping generations version of Dixit (1991) model.
  - General equilibrium framework adapted to analyze collection lags and collection cost functions.

### Key findings
- Collection lags do not have a uniform effect on the desired rate of inflation; outcomes depend on:
  - The specification of the collection cost function.
  - The size of government spending in GDP.
- Possible effects on desired inflation:
  - Increase the desired rate of inflation.
  - Leave the desired rate of inflation unchanged.
  - Reduce the desired rate of inflation.

### Policy implications
- Policy prescriptions regarding seigniorage and inflation taxation cannot rely on a single, general conclusion about collection lags; they must account for:
  - The functional form of collection costs.
  - The scale of government spending relative to GDP.
- Optimal tax structure assessments should incorporate collection lag dynamics within a general equilibrium, overlapping generations framework.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/collection-lags-and-the-optimal-inflation-tax-a-reconsideration-737_